1. A Few Differences Between Texas and Pennsylvania Oil and Gas Law Dallas Association of Petroleum Landmen February 7, 2011 Charles W. Sartain | Michael J. Hammond | Caroline Akers Peterson

3. “Generally” and “Probably” Generally: This presentation is intended to give general information and should not be relied upon without consultation with a lawyer in Pennsylvania. Probably: Pennsylvania oil and gas case law and statutes are not fully-developed.

4. What We Won’t Be Talking About Generally, these areas of the law of Pennsylvania do not differ materially from Texas: Deed construction/Duhig Rule: Pennsylvania courts have not expressly adopted the Duhig Rule, but the cases suggest they would do so. Property descriptions: Metes and bounds govern both. Statute of Frauds: Generally the same. Can you find the property on the ground? Accommodation Doctrine: A variation applies in both states

5. What We Won’t Be Talking About Joint tenancy and tenancy in common rules apply in both states. Rule of capture exists in both states. The effect of the rule differs. In Pennsylvania there are no spacing and density regulations for formations above the Onondaga (which is below the Marcellus). “Go and do likewise”. Pooling: There are no statutory or regulatory limitations. The only limits are by contract regarding pooling authority and pooling agreements.

8. Scenario One A real estate deed in the chain of title to the tract you are investigating reserves to the seller “…all of the minerals in, on, and under…” the property. What did he reserve and what did the buyer acquire?

9. Texas You are unlikely to see such a reservation. Historically the focus of mineral transactions had been on oil and gas.

10. Pennsylvania Solid minerals and oil and gas are owned by the surface owner unless there has been a severance A grant or reservation of “minerals” does not necessarily include the oil and gas. There is a presumption that the word “mineral” does not include oil or gas. The Dunham Rule. The presumption is rebuttable, but the evidence must be clear and convincing. What about coal bed methane? Belongs to the owner of the coal.

11. Scenario Two You are in Washington, Greene, Fayette or Westmoreland counties: You have taken oil and gas leases, the geologist has selected a surface location for the well, and the boss asks you if its okay to drill. What must you be on the lookout for? Coal and Gas Resources Coordination Act (1984) and the Oil and Gas Act (1984). Designed to regulate the interaction between the oil and gas production and coal mining.

12. Coal and Gas Resources Coordination Act Steps in Permitting- Any new application to drill an oil or gas well must include, among other items “the name of the owner of record or operator of all known underlying workable coal seams” and “the workable coal seams, if any, underlying the tract of land upon which the well is to be drilled or altered. Notification by Department of Environmental Protection to any identified coal mine operator.

13. Coal and Gas Resources Coordination Act Coal mine operator object within 15 days if the proposed well will “penetrate anywhere within the outside coal boundaries of any operating coal mine or coal mine already projected and platted but not yet being operated or within 1,000 linear feet beyond such boundaries and the well when drilled or the pillar of coal about the well will, in the opinion of the coal owner or operator, unduly interfere with or endanger such mine.”

14. Coal and Gas Resources Coordination Act Conference between the coal mine owner or operator and the proposed oil and gas developer, where a mutually agreeable drilling location will be sought. If no agreement, then a representative of the Department of Environmental Protection will select a location as close to the originally desired location as possible, where the well can be drilled without unduly interfering with or endangering the coal mine.

16. Oil and Gas Act An alternative solution to a disputed well location: Application is filed and notice sent. Written objections to the location. The solution is driven by the chosen representatives of the parties, rather than by the DEP. If no mutually agreed location, a three-person panel - one representative chosen by the coal owner or operator, one chosen by the gas well applicant, and a third chosen by the other two.

17. Scenario Three Your prospective lessee asserts that she owns a “life estate with the right of consumption”. What does she have and what can she do with it?

18. Texas No such power in the life tenant.

19. Pennsylvania Donee has the power to dispose of all or part of the property without regard to the future rights of the remainderman. Donee cannot give away the property without consideration. Right to produce minerals without joinder of the remainderman.

20. Scenario Four The Bradshaws have occupied the property for 20 years and claim to own the property. Have they acquired ownership? How do you address this defect?

21. Texas All statutes require peaceful and adverse possession Two year statute: Under title or color of title. Five year statute: By someone who cultivates, uses or enjoys the property, pays applicable taxes on the property, and claims the property under a duly registered deed. (Does not apply to a forged deed).

22. Texas 10 year statute: By someone who cultivates, uses or enjoys the property. Without a title instrument possession is limited to 160 acres, including improvements, unless the number of acres actually exceeds 160. If the number of enclosed acres exceeds 160, possession extends to the property actually enclosed. Peaceable possession held under a duly registered deed or other memorandum of title that fixes the boundaries of the possessor’s claim extends to the boundaries specified in the instrument.

23. Texas 25 year statute Notwithstanding disability: By someone who cultivates, uses or enjoys the property, regardless of whether the person bringing the claim is or has been under a legal disability. Recorded instrument: Regardless of a legal disability, 25 years by someone who holds the property in good faith and under a deed or other instrument purporting to convey the property that is recorded in the deed records of the county. Recorded deed or other recorded instrument: Title includes all the property described in the instrument, even though the instrument is void on its face or in fact. Good and marketable title regardless of a disability arising at time in the adverse claim.

24. Pennsylvania The adverse possession must be continued for at least 21 years. For full period and under the necessary conditions. Occupancy for less than the statutory period may enable the adverse possessor to recover possession against a mere intruder, but it not against the holder of the record title. "Actual possession" is dominion; not equivalent to occupancy. There is no fixed rule by which the "actual possession" of real property by a claimant may be determined in all cases.

27. Pennsylvania For adverse possession of the mineral estate there must be: Proof of actual possession of the mineral estate through drilling, mining, etc. Proof of intent to abandon on the part of the mineral owner. Acquisition of mineral estate through default judgment is problematic due to lack of notice issues. Beware use of procedures available under P.R.C.P. 1061, et seq. (the quiet title action) to clear mineral titles – notice to the defendants via publication.

28. Scenario Five Mr. MacGillicuddy was the owner of record of a 1/16th mineral interest in the property. You know that he died in 1956 and you can’t find anyone claiming to be his heir. What do you do?

29. Texas Appointment of a receiver under Civil Practices and Remedies Code § 64.091, et seq: Non-Resident or absent defendant Does not pay taxes for five years Diligent but unsuccessful search for defendant Substantial damage Appointment of receiver by the court after suit and service by publication

30. Pennsylvania Dormant Oil and Gas Act Hurdle: Requires a bank to act as a trustee

31. Scenario Five (again) Mr. MacGillicuddy was the owner of record of the entire mineral interest in the property. What do you do?

32. Pennsylvania Dormant Oil and Gas Act does not apply where all owners are unknown.

33. Scenario Six The deed to the property you want to lease is into Mr. Mazeroski only. You know he is married. You have been told that Pennsylvania is not a community property state. Do you need Mrs. Mazeroski’sjoinder in an oil and gas lease on the property? What other precautions should you take?

34. Texas Community property is presumed if he was married at the time of the deed. Homestead: husband cannot burden the property without consent of the spouse.

35. Pennsylvania Tenancy by the Entireties: A form of co-ownership. Property is held jointly by a husband and wife. Essential characteristic: Each spouse is seized of the whole or the entirety and not a devisable part. As long as the marriage continues, neither may destroy the tenancy or alienate any portion of it for his or her own exclusive benefit without consent of the other.

36. Pennsylvania Presumption: Property held by a husband and wife is a tenancy by the entireties Can be overcome through clear and convincing evidence that the property was not intended to be held as entireties property Either spouse has presumptive power to act for both, as long as both spouses share the proceeds

37. Charles W. Sartain | Michael J. HammondCaroline Akers Peterson csartain@lrmlaw.commhammond@lrmlaw.comcakers@lrmlaw.comP: 214.954.4135